Failed to take RMDs
In 2007 I inherited an IRA from a non-spouse who died that year. I did not file any paperwork to make the IRA my inherited account. Can I now still put a stretch plan in place for RMDs based upon my age?
How are the missed RMDs (2008, 2009 and 2010) handled? Do I also take those RMDs this year? Are they calculated as if I had taken them on time starting in 2008?
Justin Watling
Permalink Submitted by Alan Spross on Mon, 2011-12-05 16:39
You can probably restore the life expectancy treatment for this IRA based on PLR 2008-11028. Under this ruling a taxpayer was allowed to make up the delinquent RMDs, but had to pay the 50% excess accumulation penalty using Form 5329 for each delinquent year. You would need to withdraw the 2008 and 2010 RMDs this year along with the 2011 RMD. 2009 RMDs were waived.
Each RMD is calculated using the divisor and prior year end account balance in the usual manner. Your initial 2007 divisor is reduced by 1.0 each year thereafter, and while 2009 is waived you 2010 RMD divisor is the 2008 divisor reduced by 2.0. All RMDs received are taxable in the year distributed. Also, note that you are also responsible to take the decedent’s 2007 RMD if the decedent did not complete it before passing in 2007.
You also have the choice of the 5 year rule if the decedent passed prior to his required beginning date. Under the 5 year rule there are no annual RMD, but the entire account must be drained by the end of the 5th year following the year of death. Since 2009 does not count as a year for this purpose, you would have to drain the account by 12/31/2013. Using the 5 year rule you would eliminate the excess accumulation charge for 2008 and 2010.
Remember, if there were any other beneficiaries on the IRA, you cannot use your own life expectancy unless you created a separate account by 12/31/2008. The other beneficiaries would have to be considered.
See Ed’s article on this attached:
http://www.financial-planning.com/fp_issues/2008_7/saving-stretch-613061…
No guarantee, but you could try to request a waiver of the penalty using the 2009 RMD waiver as a reason. Use the instructions for Form 5329 , p 6. Send a copy of the distribution statement showing that you distributed all the late RMDs. You probably have a decent chance of getting the waiver approved under the circumstances.